Early setbacks test Obama's cool

In the first six years of the New Deal, FDR’s Public Works Administration helped build 70 percent of the new school buildings constructed in the United States. But when President Barack Obama asked for $20 billion to do a little of the same in his economic recovery bill, he was effectively vetoed this week by a Maine Republican whose vote he needed in the Senate.

As Congress moves now toward final passage on Friday of the giant stimulus bill, that anecdote tells a little of the dilemma facing Obama even at this time of victory.

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Change is coming, he has promised, but it won’t be quick or easy.

The $789 billion recovery package is a major accomplishment less than a month after his Inauguration. But it’s smaller than Obama had hoped it would be just days ago, and it comes even as his chief economic point man, Treasury Secretary Timothy Geithner, is also under fire for raising expectations but putting too few chips on the table.

Add in Thursday’s announcement that Sen. Judd Gregg (R-N.H.) is withdrawing as Obama’s nominee to be commerce secretary, and this week is a real test of the president’s famous cool — and ability to take the long view.

In fact, the White House has shown plenty of that in shepherding the recovery bill through House-Senate talks this week; more than ever the president and his men stepped forward to put their stamp on the final product.

Much as Obama wanted the school construction funds, he also didn’t want the conflict with Maine Sen. Susan Collins to jeopardize passage. When the House-Senate talks seemed to falter, the president got on the phone with Speaker Nancy Pelosi (D-Calif.) and House Majority Whip Jim Clyburn (D-S.C.) to make sure that a deal moved ahead.

Late Thursday night, Democrats filed the near 1000 page two-part bill in the House after final adjustments running though the day.

Collins — one of three Republican moderates whose support is crucial — won an additional $800 million to be allocated for governors within a new state fiscal stabilization fund. General Motors will benefit from a $3.2 billion tax provision related to the company’s ability to claim net operating losses—even after receiving rescue funds this winter from the Treasury.

On a second tax matter, a five-year carry back of net operating losses for small businesses was expanded to include companies with receipts up to $15 million — compared with $5 million previously. And a favorable budget score allowed Democrats to push back up to 65% the proposed subsidy Obama wants to help newly laid off workers meet COBRA payments to keep health insurance for their families.

“We’ve got it tied down,” House Appropriations Committee Chairman Dave Obey (D-Wis.) told Politico with much relief. The House will vote first Friday afternoon and Senate Majority Leader Harry Reid (D., Nev.) said he hopes to reach agreement for a vote in the evening.

Final details on the tax package, estimated to be worth nearly $287 billion over 10 years, show better the price Obama had to pay to get a final deal. His own signature Making Work Pay payroll tax break will be scaled back to $400 per individual and $800 for couples, reducing its total impact by as much as $26 billion.

The administration made progress on two initiatives important to the working poor — expanding the earned-income tax credit for families with three or more children and increasing eligibility for the refundable child tax credit by lowering the income threshold to $3,000 in 2009 and 2010 — compared with $8,500 in 2008. Among the business tax breaks, Obama can take some credit for an expanded capital gains exclusion related to the sale of qualified small business stock held for more than five years. Candidate Obama had advocated a 100 percent exclusion, and the bill moves in his direction, raising the exclusion from 50 percent to 75 percent.